This case was before the Court on the Plaintiff’s motion to approve settlement, following his acceptance of an offer of judgment tendered by defendant pursuant to Rule 68. Although the plaintiff brought the case as a putative collective action, the accepted offer of judgment purported to resolve the case on an individual basis. Prior to the defendant having answered or appeared in the case, the plaintiff filed a notice of acceptance of an offer of judgment that defendant had made under Fed.R.Civ.P. 68. The offer of judgment provided that the case would be settled on an individual basis (not as a collective or class action) for $5000 payable to plaintiff, plus attorney’s fees of $4590, “which represents 7.65 hours at $600 an hour.” The court initially declined to enter judgment under Rule 68, instead issuing an order requiring the parties to seek the court’s approval of the settlement. Subsequently, the plaintiff complied with the October 19th Order, and filed a motion in an effort to explain that the settlement and his attorney’s fees had a reasonable basis. Upon consideration of the motion it had initially required however, the court essentially reversed itself, and in a lengthy opinion held that under the circumstances of the case- where the employee had filed a lawsuit and was represented by counsel- the parties’ private settlement of the claims did not require judicial approval.

Initially, the court discussed longstanding United States Supreme Court jurisprudence holding that employees cannot enter binding settlements waiving their rights under the FLSA, absent a showing there was a “bona fide dispute.”

Comparing the case before it the court reasoned the situation was not that contemplated by the Supreme Court, because the plaintiff had filed a lawsuit and was represented by counsel:

Curiously, however, none of the cases expressly consider the issue presented in this case, and that is presented in many others before me—settlement of a claim after the FLSA case has been commenced, i.e., a “private” settlement occurring in the context of a public lawsuit, where neither side invites, and in some cases, one or both sides actually resist, the Court’s determination of whether the settlement is fair and reasonable.

When an employer chooses to resolve an FLSA claim without pending litigation, or merely “under threat of suit” as opposed to actual suit, it is obviously taking a reasoned gamble. If the employee later sues notwithstanding the release, the employer may find itself in front of a court that simply disregards the release because it was not previously approved by a court or the Department of Labor. There are at least several reasons why an employer might take this risk: (1) it may be confident that it had a bona fide dispute with the employee; that the release fairly compromises that dispute; and that it will therefore be upheld; or (2) the employer may conclude that as a practical matter, the risk of the settling employee bringing a subsequent suit is small enough in relation to the amount paid as to warrant the settlement; or (3) the employer may not want the settlement publicized among other employees who may well want the same remedial treatment, and therefore may take the risk of subsequent litigation with the settling employee to reduce the likelihood of suit by other employees. The case law cited above, for the most part, involves employers who made these kinds of judgment calls, and when the releases have been subsequently challenged, the courts have either approved them or not.

In the cases before this Court, an employer rarely makes a different analysis just because the case is pending. In other words, the factors that compel parties to settle before litigation is commenced, notwithstanding the possibility that a release that an employer receives will be ineffective, often seem to be equally compelling in reaching a settlement once the litigation is commenced. Except in the less frequent context of a settled class action under the state supplemental claims or a collective action with a substantial number of opt-in plaintiffs, I have never had an employer ask me to conduct a fairness hearing so that it has the protection of a court-approved release. To the contrary, the usual context is the one I am seeing here—no participation by the employer at all, not even an appearance. In the usual case, I merely receive advice from plaintiff’s counsel that the case is over, either by a notice of voluntary dismissal under Rule 41 or a letter saying the same thing (often received the day before the scheduled initial status conference). I have then, following past practice, set the case down for a fairness hearing.

The instant case is somewhat different, but I think not materially so in terms of what steps, if any, this Court needs to take next—plaintiff has simply filed an acceptance of a Rule 68 offer of judgment. I would not even know who the attorney for the employer is but for the signature on the offer of judgment, which has been filed by plaintiff, not defendant. The employer seems quite content to have judgment entered against it, which presumably the employer will satisfy. Perhaps it views a satisfaction of judgment as more protective than a noncourt-approved release, and perhaps, with at least the possibility that a judgment will have res judicata effect where a release might not, it is. But until some court determines that there was a bona fide dispute as to how much plaintiff was owed in wages, and that the offer of judgment fairly compromises it, the employer has not eliminated its risk.

Initially the court concluded that FLSA cases are not exempt from FRCP 41, which permits parties to stipulate to dismissal:

I cannot agree with the largely unstated assumption in the cases that refuse to allow voluntary dismissals that the FLSA falls within the “applicable federal statute” exception to the Rule. Nothing in Brooklyn Savings, Gangi, or any of their reasoned progeny expressly holds that the FLSA is one of those Rule 41–exempted statutes. For it is one thing to say that a release given to an employer in a private settlement will not, under certain circumstances, be enforced in subsequent litigation—that is the holding of Brooklyn Savings and Gangi—it is quite another to say that even if the parties want to take their chances that their settlement will not be effective, the Court will not permit them to do so.

The court then went on to examine Lynn’s Food and distinguished the case from the facts before it:

I believe Lynn’s Food should be confined to its rather egregious facts. Not only did the employer settle on the cheap with unsophisticated employees, but it circumvented the DOL’s investigation in doing so, and then had the audacity to seek a judicial imprimatur validating its aggressive strategy. A narrower reading of Lynn’s Food would be that if the proposed settlement would never have been approved if presented in the context of a pending litigation, then it cannot be approved in a subsequent litigation. In contrast, had the employer paid 100% of the maximum to which the employees might have been entitled plus liquidated damages in a bona fide dispute, the broad language used by the Eleventh Circuit might well have been unnecessary. Indeed, the Eleventh Circuit has recently expressed a similar view. See Dionne v. Floormasters Enterprises, Inc., 667 F.3d 1199 (11th Cir.2012) (if the employer tenders 100% of the unpaid wages claimed by the employee, plus liquidated damages, even while denying liability, the case is moot and no fairness hearing is necessary, nor is the employee a prevailing party entitled to an attorney’s fee). It is hard to conceive of any reason why, if a court is presented with an eminently reasonable, albeit after-the-fact, settlement, it is precluded from giving it legal effect. That is essentially what the Fifth Circuit held recently in upholding a private settlement, distinguishing Lynn’s Food because of its one-sided facts. See Martin v. Spring Break ’83 Productions, L.L .C., 688 F.3d 247, 253–256 & n. 10 (5th Cir.2012).

More importantly, Lynn’s Food does not expressly address the issue of whether parties can voluntarily withdraw a case under Rule 41. It does not preclude the plaintiff or the parties from proceeding unilaterally or bilaterally, depending on the timing, from withdrawing a case and taking their, principally the employer’s, chances in effectuating a settlement without court approval. It simply says, like all of the cases in this area, that the courts will not recognize an unreasonable FLSA settlement, whether the settlement is asserted by the employer as a defense in the settling employee’s subsequent suit, or, as in Lynn’s Food, as the basis for declaratory relief in an action that the employer has brought. Lynn’s Food thus does not dispose of the issue of whether parties in a pending action can voluntarily dismiss the case without any judicial assurances if that is what they want to do.

Recognizing the risks of unsupervised settlements of FLSA cases, the court said:

This is not to say that there is an absence of arguably undesirable consequences in allowing private settlements of FLSA litigation without court oversight. As noted above, in the typical cases I have, like this one, where private resolutions are reached and judicial scrutiny is neither sought nor desired, the case is brought as a collective action but resolved before a collective action notice has gone out to other employees. Although one employee, the named plaintiff, has presumably benefitted to at least some extent from the private resolution, other similarly situated employees will likely not even know about it, and to the extent they have not received their minimum wages or overtime, they will be no better off. Indeed, in at least one case, I have had the employer’s attorney candidly tell me that the reason he wished to avoid a fairness hearing was to prevent other employees from learning of the settlement and seeking the same relief.

I am not suggesting that plaintiff in the instant case or his attorney, who is an experienced and well-regarded practitioner in this Court, have committed any impropriety. But the scenario is conducive to a dynamic that allows both a plaintiff and his employer—not to mention the plaintiff’s attorney, who frequently receives a fee that greatly exceeds the plaintiff’s recovery—to leverage a comparatively cheap settlement on the backs of the plaintiff’s co-employees. This obviously runs contrary to the intent of Congress in enacting the FLSA and in particular to its creation of the collective action mechanism. Using the potential of a collective action as a Sword of Damocles to extract a small settlement and a large, but still comparatively small in relation to the exposure the employer would face in a true collective action, attorney’s fee could not have been what Congress had in mind in authorizing collective actions.

The court went on to discuss issues of confidentiality (the body of law that says there should be no confidential settlements of FLSA cases because same flies in the face of the remedial nature of the statute) and dismiss the typical argument against non-supervised settlements (the threat that they may end up being settled on the cheap), ultimately recognizing that the defendant is the one that is taking a risk often where there is no approval, rather than vice versa:

The problem of non judicially approved confidentiality provisions in private settlements is resolved by the same allocation of employer risk as is the case with private settlements of FLSA claims generally—if a settling employee subsequently breaches the confidentiality provision, then the employer is going to have to try to enforce it, or seek rescission or damages for its violation. At that point, under the authorities cited above, the courts may well hold it unenforceable.

Unlike the recent Fifth Circuit case discussed here, this case does not seem to signal any significant change in longstanding jurisprudence, prohibiting (binding and enforceable) private settlements of FLSA cases. Rather, here the court simply confirmed that the parties to an FLSA case can resolve the case and circumvent the court’s approval, leaving open the question of whether such settlements are enforceable.

In one of the first decisions, post-Dukes, to clarify what affect the Supreme Court’s recent decision will have on conditional certification of FLSA cases, the answer appears to be not much.

In Dukes, the Supreme Court held that the trial court had inappropriately certified a class of over a million women employed by Wal-mart, based on claims of gender bias. The Supreme Court reasoned that the plaintiffs had not met their burden to demonstrate the requisite commonality required by FRCP 23. In the wake of Dukes, there was much speculation as to whether courts would extend the reasoning in Dukes to cases seeking conditional certification of collective actions under 216(b) of the FLSA. In one of the first decisions rendered on this issue, the answer appears to be a resounding no.

This case was before the court on the defendant’s motion seeking reconsideration of the court’s prior order conditionally certifying a class of drivers employed by defendant. Plaintiffs alleged that defendant, a trucking company, improperly misclassified all of its drivers as independent contractors, when they were really employees. Holding that plaintiffs had met their lenient burden of proof as so-called stage one, the court conditionally certified a nationwide class of drivers, all of whom had been classified as independent contractors. Following the Duke’s decision, the defendant sought reconsideration of the order conditionally certifying the class. Denying the motion, the court explained that the differences between FRCP 23, the class action provision under which Dukes was decided and 216(b), the opt-in provision for FLSA collective actions render Dukes inapplicable in the context of an FLSA collective action. As such, the court denied defendant’s motion.

The court reasoned:

“The instant case is a collective action brought pursuant to the FLSA, 29 U.S.C. § 216(b). Unlike Rule 23 class actions. the FLSA requires collective action members to affirmatively opt in to the case. See§ 216(b). To determine whether the proposed group of plaintiffs is “similarly situated,” and therefore qualified to proceed as a conditional collective action, a district court applies a two-step test. See Smith v. Sovereign Bancorp, Inc., No. 03–2420, 2003 U.S. Dist. LEXIS 21010 (E.D.Pa. Nov. 13, 2003). In the first step, which is assessed early in the litigation process, the plaintiff at most must make only a “modest factual showing” that the similarly situated requirement is satisfied. See Bosley v. Chubb Corp., No. 04–4598, 2005 U.S. Dist. LEXIS 10974, at *7–9 (E.D.Pa. Jun. 3, 2005). The Plaintiffs have made this modest factual showing, and this Court’s analysis is not affected by Dukes. The second step of the collective action certification process will be conducted at the close of class-related discovery, at which time this Court will conduct “a specific factual analysis of each employee’s claim to ensure that each proposed plaintiff is an appropriate party.” Harris v. Healthcare Servs. Grp., Inc., No. 06–2903, 2007 U.S. Dist. LEXIS 55221, at *2 (E.D.Pa. Jul. 31, 2007). At this second stage, AEX may argue that Dukes‘s analysis of what constitutes a “common question” is persuasive to this Court’s analysis of whether an FLSA collective action should be certified. In the interim, AEX’s motion for reconsideration is denied.”